By the end of this coming week we will see what financial goodies are to be delivered in the Pre Budget Statement. I would guess this will be, perhaps, the most important budget statement this century, and nothing like the original intention of a pre - budget statement. The case, as I said in a previous blog, is quite strongly in favour of a robust stimulus package. Initial indications suggest that it needs to be up to 2% of GDP which would mean some £50bn.
There is, however, one big caveat. The Chancellor will have to admit that he is only buying some breathing space and that if he does not also introduce a plan for paying for it by increased taxes and cuts in Government spending in definitive time frames he risks further damage to the beleaguered pound. The breathing space, so created, will almost certainly last until the next election and it will look very much like our votes are being bought.
The most likely course that will be taken is a combination of "carrot and stick" and "buy now while you can." For instance taxes that directly impact on consumption like VAT and Stamp Duty may well be eased during a period of advance notification that they will be increased.
Tax credits could be used to address the 10% problem, although personally I think there would be a good case politically for just accepting that this was a mistake and bringing back the 10% band.
Tax cuts have also got to stem the tide of rising unemployment and so there may be some easing of National Insurance Contributions in certain circumstances. A far sighted policy would be to make pensions saving more attractive in the hope that encouraging higher inflows will help stimulate the equity market or at least increase the demand for gilts which will need to be issued to pay for all of this.
Whatever happens the need to plan your response and long term financial situation will have just become even more imperative!
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